Income from Sale of Land held as Stock is Business Income

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order :

19. We have also perused the case laws submitted by the assessee. The case CIT Vs Tejas Securities 393 ITR 132 (Guj.), Deepa Ben Shah Vs DCIT 397 ITR 687, CIT Vs dealt with Short Term Capital Gains Vs business income in case of share transaction by a broker. Neither the facts nor the ratio is applicable to the instant case as that case deals with various parameters laid down by the CBDT as to how the holding period of the shares be considered. The case of CIT Vs Amit Modi 334 ITR 192 (P&H) also deals with the treatment of surplus arising on the sale of shares by an assessee taking into consideration of multiple factors for inferring whether a particular transactions is an adventure in the nature of trade or not. Similarly, the case of CIT Vs SMAA Enterprises 382 ITR 175 deals with treatment of shares made out of own funds. Similarly, the case of Telestar Investment 387 ITR 248 and Jubi lant Securities Pvt. Ltd. 333 ITR 445 have been perused and found that the facts are pertaining to share transaction and investment and the ratio is not applicable to the instant case.

20. In the case of CIT Vs Gopal Purohit 336 ITR 287, the Hon’ble High Court of Bombay upheld the Tribunal findings that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical. It decided against the action of the revenue to treat the income differently in one particular year against regular method followed by the assessee and the revenue. Similarly, the judgment of Hon’ble Supreme Court in the case Mahendra Mi l ls 243 ITR 56 held that the department cannot take the advantage of mistake done by the assessee. This judgment has been delivered in connection with non-claiming of depreciation by the assessee in the return which has been claimed as a later date. The other case laws filed by the ld. AR have been duly perused and find that they are not applicable to the facts of the case. Most of the case laws rel ied upon by the ld. AR pertains to treatment of unsold stock-in-trade as investment by the stock brokers at the completion of the financial year. The conversion of stock-intrade to investments is a continuous process resorted to by these stock brokers which the revenue disputed to be treated as investments. Similarly, we have also gone through the judgment wherein the revenue cannot take the benefit of the mistake committed by the assessee in offering the income to tax. We have also gone through the judgments stating that books of accounts is not the final authority to determine the nature of the transactions. In this background, we have gone through the nature of the transactions independently so as to determine whether the land in question is investment or stock-in-trade irrespective of the fact whether the books of accounts have been wrongly accounted or whether the capital gains have been wrongly offered to tax.

21. The assessee has also taken a plea that the land has been sold only on account of the notice received from the revenue department to surrender the land as it was an encroachment on the Gaon Sabha Land. The notice was issued in the year 1997 hence cannot be given any relevance with regard to determination for the issue before us. The fact that the land in question has been sold after obtaining NOC from the ADM, South District, New Delhi on 24.01.2011. We find that the main objects of the company are to acquire purchase take on lease are otherwise any land building, structures plot to act as real estate agents in connection with building schemes and also to be colonizers to sale plots and flats. Having acquired the land as stock-in-trade, the land continued to be held for business purpose and continued to be shown as closing stock for all the years. The assessee is into the business of acquiring and sale of plot and colonizers. Hence, on going through the Memorandum and Articles of Association, conduct and business affairs of the assessee, and on perusal of the books of accounts of the assessee, it cannot to be said to be an income arising out of capital gains and has been rightly treated as business income by the ld. CIT (A).

Adjudication as to whether the capital gains are el igible to avail its exemption:

22. Since, we have already ruled that the income derived by the assessee is “business income” but not “capital gains”, any adjudication as to whether the capital gains are eligible for exemption or not would be only academic in nature. As a ground to this extent has been taken by the assessee, the same is being adjudicated as under:

23. Section 2(14)(iii) deals with agricultural land in India with regard to the meaning of capital asset. The Section reads as under:

“Section 2(14)……..

(iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand [***] ; or

[(b) in any area within the distance, measured aerially,—

(I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh;

or

(II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been publ ished before the first day of the previous year;]]”

24. The fundamental principles with regard to the Section 2(14)(iii) can be summed up in the case of assessee as under:

a. “No land within the municipal limit of Delhi can be considered as agricultural land.

b. The issue of population arises if the land is situated outside the limits of the municipality. In that case the twin conditions of distance and the population have to be made to claim it as a noncapital asset.”

25. The assessee’s contention that South Delhi Municipal Corporation has came into existence in the year 2011 doesn’t materially support anything with regard to the municipal limit as even after bifurcation, the municipal limit remained unaltered. Hence, even based on the municipal limits of Delhi Municipal Corporation or even based on municipal limits of South Delhi Municipal Corporation, the assessee’s land which is in the Bhatti, Hauz Khas, New Delhi falls within the jurisdiction of the municipality at the time of purchase and at the time of sale as well as at the time of sale cannot escape the rigors of taxation.

26. Since, the income earned has been already adjudicated on merits to be taxed as “business income”, it is hereby clarified that the treatment proposed by the assessee to consider the proceeds of the sale of land under the head “Long Term Capital Gains” and subsequent exemption from taxation cannot be held to be valid in the eyes of law.

27. Regarding the disallowance of Rs.2,00,000/- u/s 40(a)(ia), the assessee claimed to have paid brokerage to a person namely, Sh. Sunder Singh. The assessee submitted that since this is the first year of business transaction in the absence of TAN, no TDS could be deducted. The ld. CIT (A) upheld the disallowance u/s 40(a)(ia) on the grounds that the assessee is not a new company and been in the business of land transactions from 1997 and the provisions of TDS are clearly defaulted by the assessee. In the absence of any evidences contra, putforth by the assessee, we hereby decline to interfere with the order of the ld. CIT (A) on this issue.

28. In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 05/05/2020.